Co-ops vs. Condos

 

 

 

Co-ops (short for “cooperatives”) are apartment buildings owned by a corporation. Individual tenants do not own their apartments in exactly the same way that they would a condominium or home. They actually own shares of stock in the corporation. These shares are apportioned based on the size and floor level of their apartment. Ownership is established by a stock certificate and occupancy is governed by a “proprietary lease.” The corporation pays all real estate taxes, maintenance expenses, and the underlying mortgage on the building. The co-op owner’s portion of the payment depends on the number of shares owned in the corporation.

 

Cooperative ownership is the most common form of apartment ownership in New York City. There are three times as many co-ops as there are condominiums in Manhattan, which means that there are more cooperative apartments on the market and they are likely to be more affordable than similarly sized condominiums.

 

History of Co-ops

 

If the idea of going through a coop board sounds a little un-American and intrusive, well…it is. Cooperative living got its start in the 1880’s, inspired by Charles Fourier, a French socialist who argued that cooperation bred efficiency. A French immigrant to New York named Philip Hubert picked up on the idea and built arguably the first co-op, the Hubert Home Club, near the current site of Carnegie Hall.

 

But according to the New York Times, despite their utopian origins, co-ops quickly turned into a celebration of capitalism and exclusivity. Soaring new Hubert Home Clubs opened on Madison Avenue and next to Central Park, offering the sort of living space that has always made New Yorkers envious, according to the writer Elizabeth Hawes.

 

Today, co-ops  make up the bulk of our housing. As always, the boards have the right to reject any buyer who doesn’t quite fit, however they define “fit.” Socialism turned into New York style elitism? Yes, indeed.

 

Advantages of Cooperatives

 

  • The tenant-owners elect a Board of Directors, whose responsibility is to interview and “approve” or “disapprove” a prospective owner, thereby protecting the present tenants’ interest by approving only qualified candidates.

  • Cooperative ownership offers a more stable community environment. Residents tend to stay for longer periods of time, and few co-ops allow extensive subletting, preferring a high owner-occupancy.

  • A large portion of the monthly maintenance fee paid by each shareholder is tax deductible, i.e., the pro-rata share of the corporation’s real estate taxes, as well as the building’s underlying mortgage payment.

 

Disadvantages of Cooperatives

 

  • The board often requires a large cash down payment. Usually prospective purchasers are required to put 25% down. Some co-ops may require more. Many of the most exclusive buildings permit no financing at all.

  • Most co-ops prefer owners to be occupants; therefore subletting an apartment may be difficult. Each co-op board has its own set of rules, but generally speaking, subletting will have to be approved by the board, and permission is usually granted for no more than 2 years. Some co-ops, however, are more flexible and are known as “easy boards”.

  • Owners are typically not allowed to use their apartments for professional or business purposes.

  • Owners who wish to sell their apartments must have the new buyer approved by the board through the application process.

  • Often co-cops impose a fee upon selling called a “flip tax”. The monies go to the co-op treasury and help keep monthly maintenance down.

 

Despite the disadvantages, cooperative ownership remains a very popular option for residential ownership in New York City. The Patrick Lilly Team can be relied upon to guide you through the purchasing process.

 

Condominiums

 

Owning a condominium in Manhattan is the same as owning one anywhere else. It is a fee simple ownership and the buyer receives a deed in a formal title transfer. Monthly payments to the condominium are called “common charges”, and they are used strictly for maintenance and upkeep of the jointly owned areas. Of course, the amount of interest on the owner’s personal mortgage is fully tax-deductible. Real Estate taxes are paid directly to the city.

Fee simple ownership gives owners the right to rent their own apartment, a priority for some people. Mortgage amounts can be as high as 90% of the sales price if the buyer qualifies. The application process is less formal so the time from contract signing to closing is usually shorter.

 

 

Summary

 

Review of Cooperatives (Co-ops)

 

  • The cooperative corporation owns the building and the tenant (unit owner) owns shares of stock (assigned according to size and type of apartment).

  • Co-ops are governed by a board of directors (resident shareholders) that determines the requirements for applicants.

  • The co-op application process is quite lengthy and may require flexibility in terms of occupancy date.

  • Renting in a co-op building is referred to as subleasing. Prospective sublessees are subject to the same application process as someone wishing to become a shareholder.

  • Applicants must provide financial and social information to the Board of Directors and will also be required to attend a personal interview.

  • The Board of Directors may accept or reject applications without furnishing a reason.

  • There are both modern and older co-op buildings, however, most prewar buildings are co-ops.

  • Cooperative ownership also involves a monthly maintenance fee (for building upkeep, staff salaries, etc.) that is based upon the number of shares assigned to a particular owner. The monthly maintenance charge also includes an owner’s share of building real estate taxes. This portion of the maintenance is tax deductible. The interest on the owners share of the underlying mortgage is also tax deductible. 

 

Review of Condominiums

 

  • Condominiums are considered real property.

  • Some condominiums require a purchaser to submit detailed financial and social information. A personal interview is usually not required.

  • The condominium application process can be quite lengthy and may require flexibility in terms of occupancy date.

  • Condominium buildings account for approximately 25% of the total ownership buildings in Manhattan.

  • Use of an on-site health club and pool is sometimes included in the monthly common charges.

  • Condominium ownership also involves a monthly fee called Common Charges (for building upkeep, preservation of common areas, staff salaries, etc.) that is based upon the square footage of a particular owner’s apartment. Real estate taxes are excluded from the common charges and are paid to the City separately. Real estate taxes are, however, tax deductible.